Methanol market to keep consolidation amid increase of supply and demand

China methanol prices fluctuated upward for much of Aug, but the gains were capped by rising inventory, as well as expectation of supply recovery.

On demand side, Jiangsu Sierbang has restarted its 800kt/yr MTO plant on Aug 13, and raised the operating rate to 85-90%. Gansu Huating's 200kt/yr MTP plant (methanol-to-propylene), which had been idled since the completion in 2021, has begun trial run since Aug 10. Ningxia Baofeng's new 1.15 million mt/yr MTO plant started trial run on Aug 17, and its 2.4 million mt/yr methanol plant has been running stably. With the restart of Sierbang's MTO plant, in particular, demand for feedstock methanol increased. However, after the expectation of MTO plant restart materialized, methanol price corrected and trimmed some gains.

In terms of the profit for MTO plants, it remained poor, reflected by PP-methanol price spread in East China. In the week ending Aug 18, the average spread of PP-3*methanol was assessed at 342yuan/mt, below the processing cost, indicting immense losses. But the impact on plant operations seems to be small. Only Yangmei Hengtong has reduced operating rate slightly, but operating rates of other plants are little changed.

In Sep, demand for methanol from MTO sector is expected to remain stable. Tianjin Bohua earlier scheduled to shut its MTO plant in Aug for maintenance, but now it has been delayed and the date for maintenance is undecided. Meanwhile, Zhejiang Xingxing also has plan to restart its MTO plant.

Demand outlook is relatively good. Sep and Oct are traditionally peak demand and consumption season in China. We call it gold Sep and silver Oct, as the sentiment in investment and consumption in various industries is robust during Sep and Oct. As for methanol, downstream formaldehyde sector could improve with demand picking up, supportive to methanol.

On supply side, with coal-based methanol recovering some losses as coal price weakens, China domestic methanol supply could increase.

Cash flow = methanol – 2*coal – 800yuan/mt

In addition, port inventory of methanol is increasing with cargoes arriving intensively. China methanol imports are expected to be large in Sep, as overseas supply may recover.

For more details, please refer to the insight China methanol imports affected by Panama Canal restrictions and overseas plant shutdowns.

In a conclusion, in Sep, the negative impact on methanol market may come from large imports. Supply growth may outpace demand growth slightly. But demand is also expected to increase, and if Zhejiang Xingxing restarts its MTO plant, demand for methanol will become stronger. Methanol price is likely to keep consolidation.